Apr. 28, 2014
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John Shinal, technology columnist for USA TODAY. / USA TODAY

by John Shinal, Special for USA TODAY

by John Shinal, Special for USA TODAY

LOS ANGELES - Some start-ups use whiteboards or PowerPoints to let employees know whether the company has had a good week.

At FreedomPop here, the mostly-twentysomething workers just have to look at what grade of tequila Stephen Stokols, the company's founder and CEO, has purchased for the all-hands meeting on any given Friday afternoon.

Lately, as the company's revenue and subscriber base have surged, there's been more premium Don Julio than Distinqt Tequila, the house brand of Trader Joe's.

"They know right away how we did," Stokols tells me.

The bottles - dozens of them in many shapes and colors - line the top of a narrow half-wall of concrete that runs down the middle of the company's concrete and cinder block headquarters in far west Los Angeles.

Within about 3,000 square feet of commercial space in a palm-shaded strip mall not far from Santa Monica, Stokols and his 70-person company are trying to upend the U.S. smartphone market one refurbished device at a time.

After making waves last year by offering free older phones and free basic service plans, FreedomPop is about to go public with an even bolder move.

The company this week will begin selling refurbished iPhone 5 devices for $349.

Other customers can bring their own iPhone 5.

It's the first time the company, which has been selling Android phones exclusively, is supporting Apple devices.

"We're upping the stakes," Stokols told me over sushi at Kiriko, around the corner from FreedomPop in an area West L.A. locals call Ramen Row.

FreedomPop's goal is to sell 300,000 refurbished-in-the-U.S. smartphones this year and generate annual revenue of $40 million to $50 million, Stokols says.

Not long after FreedomPop's aggressive move last year, No. 4 wireless provider T-Mobile dropped its prices.

While AT&T CFO John Stephens this week dismissed rival marketing moves as "noise," he also revealed to analysts that the phone giant as of late last year is in the same business FreedomPop helped pioneer:

Actively trading in used cellphones turned in by U.S. subscribers, devices that in years past would have been destined straight to Asia for refurbishment.

That business is the domain of Ian McLaughlin, director of product acquisition, whose desk is near the FreedomPop front door, about 30 feet of concrete and palm trees away from a hair salon.

Using about 20 to 50 phone calls a day, McLaughlin finds the best deals on the latest smartphones that come onto the U.S. resale market when wireless consumers trade up.

As we stand amid four computer monitors that surround his workspace, ones McLaughlin uses to monitor multiple online auctions, he points out batches of smartphones being bid on in real time on websites such as Cellpex.com and TheWirelessBuzz.com.

"Here's one worth calling on," he says, pointing to a lot of 200 phones being offered for $400 each.

Is that a good price?

"It depends on what kind of shape they're in," he says - and how reputable the dealer selling them is.

In one transaction that cost FreedomPop $20,000, a Chinese seller of the devices had its website hacked and its record of the sale - and payment - vanished.

"For 48 hours, I wasn't sure I still had a job," McLaughlin says, adding, "If it sounds too good to be true online, it probably is."

While learning such lessons, he's managed to secure enough phones at cut-rate prices to fuel Stokols' dream: selling a low-cost, one-generation-old smartphone to any U.S. consumer who wants one.

The company will throw in free basic talk, text and data service, with heftier plans beginning at $5 a month, along with the price of a subsidized phone.

To do it, FreedomPop has gone to Mission Hills Auctioneers in San Diego and bought handsets at the docks in nearby Long Beach - cash only! - for pennies on the dollar.

On his best day, McLaughlin snared FreedomPop 15,000 smartphones.

The week following my visit in early April, McLaughlin boarded a plane to Shenzhen, China, in search of a good deal on the iPhone 5.

"Nobody goes as deep into the supply stream as we do," says Mauricio Sastre, FreedomPop's vice president of product.

As Stokols walked me through the warren of bunkers that comprise the back half of FreedomPop headquarters, the youthful enthusiasm of the workers lining the walls was palpable.

"We watch The Wolf of Wall Street to get pumped up," said Alex Salas, a sales staffer whose necktie looked out of place amid the mostly-casual attire.

"All the sales guys wear ties," Stokols said. He later told me FreedomPop employees decided in a vote to remain in their first-floor, concrete office, rather than move into pricier digs in a high-rise across Olympic Avenue, which has an ocean view.

That collective decision by a small wireless company near L.A.'s Ramen Row shows a spirit of shared sacrifice is alive and well amid the tech start-up scene of Southern California.

Just keep the good tequila flowing!

John Shinal has covered tech and financial markets for 15 years at Bloomberg, BusinessWeek, the San Francisco Chronicle, Dow Jones MarketWatch, Wall Street Journal Digital Network and others. Follow him on Twitter: @johnshinal.